The market is overbuilt but few think Thailand will see a repeat of the speculation-driven 1997-98 collapse

“In Thailand, there is no shortage of housing at all,” says Sopon Pornchokchai, president of the Agency for Real Estate Affairs (AREA).

In a report published in December, AREA estimated that 397 new housing and condominium projects were launched in Bangkok last year, putting 117,112 new units to the market, up 8% year-on-year. “If this trend goes on in 2018, a bubble burst can be witnessed in 2019 or 2020,” AREA’s Sopon warned.

Colliers International Thailand, a property consultant, estimates that some 36,000 condominium units remained unsold in the capital at year end, or about 23% of the new supply. For other realtors, the unsold estimates are even higher.

“At the beginning of the year there were about 28,000 built but unsold units by major developers and 28,000 under construction but unsold,” said James Pitchon, executive director of CBRE. “But we think those numbers are coming down, so they are making inroads into that inventory.”

The glut is particularly noticeable in the lower-priced, single unit condominiums that have proliferated along Bangkok’s new mass transit lines, attracting mostly Thai investors buying for their own use or as speculators aiming at the rental market.

The Bank of Thailand has pressured banks to reduce their exposure to the mortgage market, with some effect, so it is unlikely that Thailand will re-experience the financial crisis of 1997-98, triggered to a large extent by banks’ overexposure to the property sector using foreign bank loans.

Nowadays, Thailand’s leading developers are more dependent on the bond market than the banks. “Are we in a bubble? I would say no, I can’t see that,” Pitchon said.

Bangkok’s skyline as of November 2017. Photo: istock/Getty Images

Vichai Viratkapan, acting director general of the Real Estate Information Center (REIC), set up by the Government Housing Bank to monitor the property market in the aftermath of the 1997-98 crisis, concurs that no collapse is imminent.

“I think the developers have learned to invest wisely,” he opined. “If there is oversupply, they slow down or invest in other segments, such as luxury properties. If 20% of the supply is unsold, that’s normal. It can be absorbed.”

This new normal, of about 20% unsold inventory, extends to the Eastern Seaboard, where the military-installed government of Prime Minister Prayuth Chan-ocha is banking on its newly coined Eastern Economic Corridor (EEC) to provide a new engine for economic growth.

Whether the EEC will lead to a boom in property remains to be seen. There is certainly plenty of housing still available in the three corridor eastern provinces of Chachoengsao, Chonburi and Rayong.

In Bang Lamung district, which includes the Pattaya and Jomtien beach resorts in Chonburi province, there are currently 51,000 recently built condominium units, of which some 6,000 remain unsold, or 11.8% of the total, according to REIC’s latest figures.

In Chonburi’s Sri Racha district, a popular residential area for Thai factory employees and Japanese managers, there are some 12,000 condominium units, of which 2,800 units remain unsold, or 23%. In Chonburi province there are 35,000 housing units, of which some 4,000 are unsold, or 11.4%, REIC says.

Old apartments juxtaposed against new high-rises in Pattaya, July 8, 2017. Photo: iStock/Getty Images

Housing sales have been slow over the past three years coincident with economic doldrums, but a slow revival in 2017 when gross domestic product (GDP) grew nearly 4% could spell an uptick for the sector.

Pattaya property is well positioned to do better in 2018, thanks to the EEC and a surge in Chinese tourists visiting the resort. Chinese visitors have been the leading visitors to Pattaya for the past three years, Tourism Authority of Thailand (TAT) officials estimate.

Unlike other popular Thai beach resorts, such as Phuket and Hua Hin, Pattaya and nearby Jomtien have the added attraction of being smack in the middle of an industrial corridor.

“When people come to me to buy, as an investment, they are also considering Phuket and Hua Hin,” said Mark Bowling, partner at the Pattaya Realty Company. “I always tell them if Pattaya’s tourism dried up tomorrow and nobody came to visit here, it’s still a city in its own right with expatriates living down here and people working on the industrial estates. But in Phuket, if tourism goes boom – as it did after the 2004 tsunami – what’s going to happen to your property investment?”

Pattaya/Jomtien in fact benefitted from the man-made river-spawned tsunami that swamped parts of Bangkok in 2011 and knocked several industrial estates out of service for months.

“After the 2011 floods, there was a jump in sales (residential and industrial), primarily from a lot of people relocating to the Eastern Seaboard in fear of future floods,” Pitchon said. “That led sales from 2012 to 2013.”

An influx of Russian tourists to Pattaya provided another fillip to the Pattaya market, as many long-term stayers ended up investing in condominiums before the ruble collapsed in mid-2014. Now, it is the Chinese tourists who are starting to explore Pattaya/Jomtien property.

“The Chinese remind me of how the Russians began initially, just putting their toe in the water, testing the market,” Bowling said. “They are buying, but the low-end stuff, but the Russians were initially buying 1 million baht (US$31,400) condos and now you have Russians buying 100 million baht (US$3.1 million) houses.”

Pattaya land prices, meanwhile, are soaring with or without the EEC, especially along the beach road where a rai (.16 hectare) of land can now fetch 300 million baht (US$9.4 million) compared with 30 million (US$942,000) a decade ago.

On the bright side, the rising prices may result in better zoning of the sleazier elements of Pattaya’s notorious entertainment scene, getting it off the main drag frequented by foreign tourists, many of them with their families.

“How can a piece of land worth millions of dollars be the site of some beer bars,” Bowling said. “You’ll see every now and then a swathe of beer bars will disappear and a new hotel pop up. That’s going to happen all along beach road here,” he predicts.